“Our results in 2020 have continued to demonstrate the strength of our business and the superior capabilities of our team,” said Jonathan Sandelman, CEO of Ayr Strategies. “Although cannabis has been deemed an ‘essential business’, the regulators in Massachusetts and Nevada, where we currently operate, were among the few nationwide to place material restrictions on cannabis sales. So unlike many cannabis companies in the U.S., our business faced headwinds.”

“Despite these limitations, in the first quarter we produced sequentially higher revenue and substantial adjusted EBITDA, and added material cash from operations to our balance sheet,” continued Sandelman. “Since then, we have successfully accelerated our digital transformation initiatives, and we expect to exit the challenges presented by COVID a materially stronger business, as evidenced by the rebound in ticket size, transaction volume and retail margins we are seeing thus far in May.

“However, given the disruption caused by COVID, and the uncertainty around the pandemic’s ultimate impact on our markets and the regulatory environment, our prior revenue and adjusted EBITDA guidance for 2020 can no longer apply. Even though COVID has delayed some of our initiatives, we are confident that we will deliver strong revenue and adjusted EBITDA growth over the prior year.”

Q1 Financial Highlights

Revenue: Total revenue increased 4% to $33.6 million compared to $32.3 million in Q4 2019, driven through early March by higher retail sales in Nevada and higher wholesale revenues in Massachusetts. Revenues declined beginning in mid-March due to COVID-related closures and began to rebound in Q2

Gross Profit1: Gross profit increased 10% to $16.6 million compared to $15.1 million in Q4 2019

Adjusted EBITDA: Adjusted EBITDA was $8.4 million compared to $9.2 million in Q4 2019, as March expenses decreased at a slower pace than revenues, which declined due to COVID-related closures

Loss from Operations: Loss from operations improved to $4.9 million compared to $16.9 million in Q4 2019

Cash Flow from Operations: Cash generated by operating activities increased 85% to $7.4 million compared to $4.0 million in Q4 2019

Balance Sheet: At March 31, 2020, cash and cash equivalents was $9.9 million, an 18% increase compared to $8.4 million of cash and cash equivalents at December 31, 2019

“Through early March, our business was performing well above the record pace we set in the fourth quarter of 2019,” continued Sandelman. “Had regulators not restricted our businesses in mid-March, total revenue and adjusted EBITDA would have been up nearly 16% and 10% quarter-over-quarter, respectively.

“In Q2, we are pleased to have continued to produce positive adjusted EBITDA and cash flow from operations in both April and May to date, despite the COVID shutdowns. In fact, because of the improvements made to our business model in April, for those business areas currently open (only our Massachusetts wholesale business is closed) May is pacing to produce more adjusted EBITDA than our prior monthly records in January and February 2020. Given that regulators announced on Monday that Massachusetts adult use sales can commence again next week, we anticipate returning to Q1 levels of adjusted EBITDA or better beginning in June.”

Operational Highlights

As a reminder, Nevada regulators limited all cannabis sales to delivery-only beginning March 21, 2020, with curbside pick-up approved on May 1st and in-store sales on May 9th. In Massachusetts, regulators restricted adult use cannabis sales beginning March 24, 2020, with adult use curbside pick-up scheduled to re-commence on May 25th.

Nevada May to Date Retail

Average daily revenues are currently over $200k; daily transaction volumes over 2,400, with average ticket of $84 per transaction; estimated gross margin levels just under 60%

We have retooled our technology, rapidly implemented new software and an e-commerce oriented website, and launched digital marketing campaigns to support online sales

As a result of these business initiatives, May adjusted EBITDA in the state is tracking 3% above the record months of January and February 2020 despite lower revenues

Massachusetts May to Date Retail

Average daily revenues are currently over $59k; daily transaction volumes over 300, with average ticket of $186 per transaction; estimated gross margin levels in the low 60% range

As a result, May dispensary revenues are tracking to over $1.8 million, 90% above January and February 2020 levels

Cultivation Expansions

In Massachusetts, we have completed four harvests to date from our cultivation expansion, resulting in strong inventories available to address pent-up demand when adult use sales are expected to resume May 25

Massachusetts cultivation expansion is expected to double wholesale capacity from the $2.5 million monthly average in Q1 and is expected to improve gross margins in the state from the low 60% range in Q1 to approximately 70% in Q2 and beyond

In Nevada, product from our cultivation expansion is expected to arrive in stores in June, allowing for internally sourced product to increase from 25% in Q1 up to 50% in Q2

Nevada gross margin is expected to increase as a result, from 45% in Q1 to approximately 60% in Q2

“Over the weeks following the COVID closures, we streamlined and improved our business. In Nevada, prior to COVID, growth from our existing dispensary footprint was limited by transaction capacity. Today, with Ayr generating higher levels of adjusted EBITDA on fewer transactions, we estimate our adjusted EBITDA capacity has increased 35% in the state, assuming we can reach pre-COVID revenue at these margin levels,” said Mr. Sandelman.

“In Massachusetts, the excellent results being generated from our newest cultivation facility put us in a position to address the wholesale market with more than double our prior capacity. In terms of our Massachusetts retail operations, we entered 2020 expecting one of our current medical dispensaries to open for adult use sales in May, and two more in September; and in supplement to these, in February we secured an alternate adult-use license in a favorable greater Boston town. However, COVID has closed local governments in Massachusetts and delayed approvals for these adult use dispensary conversions by several months, if not more. While we are disappointed at the COVID-related delays in converting to adult-use sales in our dispensaries, we are confident that our high density, high traffic greater Boston locations will result in persistently strong retail sales opportunities when our stores convert to adult use.

“As a management team, we work tirelessly to exceed expectations on what we can control, and to mitigate what we can’t. We will continue to execute on our strategy and seek to operate at the highest levels, and the strong foundation and culture we have created at Ayr is expected to pay off as we further expand in 2020.

“I want to highlight how impressively the men and women on our team have pulled together to reshape our company through COVID. Looking forward, it is this strong culture that we believe will differentiate us from our competitors.”

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Gateway Investor Relations at (949) 574-3860.

The conference call will be broadcast live and available for replay here.

A telephonic replay of the conference call will also be available after 11:30 a.m. Eastern time on the same day through May 28, 2020.

Certain financial information reported in this news release is extracted from Ayr’s financial statements as at and for the three month period ended March 31, 2020. These results presented herein are preliminary and subject to change. Ayr will file its interim financial statements on SEDAR shortly. All such financial information contained in this news release is qualified in its entirety by reference to such financial statements.

Definition and Reconciliation of Non-IFRS Measures

The Company reports certain non-IFRS measures that are used to evaluate the performance of its businesses and the performance of their respective segments, as well as to manage their capital structures. As non-IFRS measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Securities regulators require such measures to be clearly defined and reconciled with their most comparable IFRS measure.

The Company references non-IFRS measures and cannabis industry metrics in this document and elsewhere. Non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these are provided as additional information to complement those IFRS measures by providing further understanding of the results of the operations of the Company from management’s perspective. Accordingly, these measures should not be considered in isolation, nor as a substitute for analysis of the Company’s financial information reported under IFRS. Non-IFRS measures used to analyze the performance of the Company’s businesses include “adjusted EBITDA” and “adjusted gross profit”.

The Company believes that these non-IFRS financial measures provide meaningful supplemental information regarding the Company’s performances and may be useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making. These financial measures are intended to provide investors with supplemental measures of the Company’s operating performances and thus highlight trends in the Company’s core businesses that may not otherwise be apparent when solely relying on the IFRS measures.

Adjusted EBITDA

“Adjusted EBITDA” represents income (loss) from operations, as reported, before interest and tax, adjusted to exclude extraordinary items, non-recurring items, other non-cash items, including stock-based compensation expense, depreciation and amortization, the adjustments for the accounting of the fair value of biological assets and the incremental costs to acquire cannabis inventory in a business combination, and further adjusted to remove acquisition related costs.

Adjusted Gross Profit

“Adjusted gross profit” represents the gross profit, as reported, adjusted to exclude the accounting for the fair value of biological assets and the incremental costs to acquire cannabis inventory in a business combination.

A reconciliation of how Ayr calculates adjusted EBITDA is provided below. Additional reconciliations of adjusted EBITDA and other disclosures concerning non-IFRS measures will be provided in our MD&A for the 3 months ended March 31, 2020. For a reconciliation of how Ayr calculates adjusted gross profit refer to the MD&A for the three months and year-end December 31, 2019. As well, the Company reminds you that adjusted EBITDA and adjusted gross profit are non-IFRS measures.

Forward-Looking Statements

Certain information contained in this news release may be forward-looking statements within the meaning of applicable securities laws. Forward-looking statements are often, but not always, identified by the use of words such as “target”, “expect”, “anticipate”, “believe”, “foresee”, “could”, “estimate”, “goal”, “outlook”, “intend”, “plan”, “seek”, “will”, “may”, “tracking”, “pacing” and “should” and similar expressions or words suggesting future outcomes. This news release includes forward-looking information and statements pertaining to, among other things, Ayr’s future growth plans. Numerous risks and uncertainties could cause the actual events and results to differ materially from the estimates, beliefs and assumptions expressed or implied in the forward-looking statements, including, but not limited to: anticipated strategic, operational and competitive benefits may not be realized; events or series of events may cause business interruptions; required regulatory approvals may not be obtained; acquisitions may not be able to be completed on satisfactory terms or at all; and Ayr may not be able to raise additional capital. Among other things, Ayr has assumed that its businesses will operate as anticipated, that it will be able to complete acquisitions on reasonable terms, and that all required regulatory approvals will be obtained on satisfactory terms and within expected time frames.

2020 estimates and assumptions involve known and unknown risks and uncertainties that may cause actual results to differ materially. While Ayr believes there is a reasonable basis for these assumptions, such estimates may not be met. These estimates represent forward-looking information. Actual results may vary and differ materially from the estimates.

Assumptions

Forward-looking information in this subject to the assumptions and risks as described in our MD&A for March 31, 2020. For more information about the Company’s 2020 operations and outlook, please view Ayr’s corporate presentation posted in the Investors section of the Company’s website at www.ayrstrategies.com. As well, we remind you that adjusted EBITDA and adjusted gross profit are non-IFRS measures. Additional reconciliations and other disclosures concerning non-IFRS measures will be provided in our MD&A for the 3 months ended March 31, 2020.

About Ayr Strategies Inc.

Ayr Strategies (“Ayr”) is an expanding vertically integrated, U.S. multi-state cannabis operator, focusing on high-growth markets. With anchor operations in Massachusetts and Nevada, the company cultivates and manufactures branded cannabis products for distribution through its network of retail outlets and through third-party stores. Ayr strives to enrich and enliven consumers’ experience every day – helping them to live their best lives, elevated.

Ayr’s leadership team brings proven expertise in growing successful businesses through disciplined operational and financial management, and is committed to driving positive impact for customers, employees and the communities they touch. For more information, please visit www.ayrstrategies.com.